Recession? Knowing if we're in one matters: Don Pittis

If only there were more businesses like Smarter Alloys, Canada wouldn't have to worry about recession. When the latest growth figures come out Tuesday morning, the answer would be clear.

Founded by inventor and University ofWaterloo grad Ibraheem Khan, Smarter Alloys has just announced it will beginbuilding prototypes of devices that use its revolutionary metal memorytechnology for everything from orthodontics to automobiles and aerospace.

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"Humans are probably the most important," says Khan, running through a list of reasons for basing his new manufacturing facility in the Waterloo area.

Smarter Alloys wants access to the region's high-tech talent pool. And the money the company is spending is boosting Canada's GDP.

Behind the statistics

Khan's startup is part of the reality behind tomorrow'sstatistics. But the unique details behind Khan's businessdecision demonstrate that some of the standardarguments for what leads to businessessuccessdo not alwaysmatch the reality.

Smarter Alloys is not producing old-style commodities like the steel and ketchup of Canada's sunset industriesthat now form what The Economist magazinecallsCanada's "new rustbelt."

Khan is selling brain power.While existing metal memory devices remembertheir original shape, the Smarter Alloys innovation allows devices to remember a series of shapes.

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According to the standard business argument, low taxes and a low dollar are supposed to boostthe export business.

But Khan needs to import manufacturing equipment. That meansthe fallingCanadian dollarmakes those imports about 25 per cent more expensive than when his company launchedits business plan just over a year ago.

Innovation value

And just as in high-tax, high-wage Germany a country that continuedto export high quality manufactured goods even when its currency was high Khan expects his product to be in such demandthatthose kinds of costs will play a minor role in hisbusiness success.

"The value that our innovation adds to the product is well beyond the input costs we have," he says.

When we finally get alook at the latest gross domestic product numbers on Tuesday morning, Smarter Alloys will be part of thosestatistics, but the startup'sunique story will be hidden. And that is the benefit of statistics. The numbers are unbiased by interpretation, political spinor anecdote.

During the firstquarter of the year, the economy failed to grow. It didn't grow in April or May, either.

By long tradition, two successive quarters without growth means a country's economy has entered a recession, sometimes called a "technical recession," meaning it is based on GDP data alone.

In many ways the dividing line between recession and non-recession is arbitrary, a matter of a few percentage points of growth,but especially in the politics of an election year, the label makes a significant difference.

If the economy has stopped growing, critics of the government might ask, "Where did all those business and personal tax cuts go?" They might ask whether the incumbents were wise to bet so heavily on the energy and resources sector.

Secret disappointment

If the economy is not in recession, opposition partieswill probably be secretly disappointed, although they are unlikely to say so. Recession is a stick to beat agovernment that stakes part of itsclaim to power onsoundfinancialmanagement.

A non-recession offers support to Conservative Leader StephenHarper's claim that although global energy prices have unexpectedly crashed the Canadian economy, it is a temporaryphenomenon and wise government policy has laid the groundwork for an economic revival that is just around the corner.

The stakes arehigh. The C.D. Howe Institute, a "non-partisan evidence-based" think tank that generally comes to right-of-centre conclusions, recently expressed the viewthat a technical recession is not necessarilya recession at all.

Conservative finance minister Joe Oliver agrees that Canada is not in recession.

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But the good thing about hard, cold statistics is that they are above the political fray.Despitepolitically motivated changes in the data it collects, Statistics Canadaremains a credible source. And while recession or non-recession remains an arbitrary line in the sand, it is the same statistical line in the sand that existed last year and 10 years ago.

Damned lies

It's not quite certainwho said it first, but according to folk wisdom,"There are three kinds of lies: lies, damned lies, and statistics." There are alsomany doubts about the validity of GDP as a measure of human welfare.

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But in the sea of partial truths that we get during an election, numbers generated by Statistics Canada using a standard data set may be the closest we get to an unbiased view of where the economy has been going over the last six months. And that unbiased view can be compared to similar data sets in the past and in the future.

Whether we are in recession or not, the young team of engineers at Smarter Alloys is convinced the future is bright.

"As we ramp up production, we'll be adding a significant number of jobs," says Michael Kuntz, Smarter Alloy's vice-president of product development.

The company, which plans to stay in Canada as it grows, has 10employees but Kuntzexpects to double that number every six or eight months.

When that expansionoccurs,using the same unbiasedmethods as it is using this time,Statistics Canadawill count itscontribution to Canada's rate of economic growth.

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